ITC is set to merge its paperboard subsidiary, ITC Bhadrachalam, with itself. The tobacco-to-hotels major informed stock exchanges today that its board will meet on September 21 to consider the proposal. The move is in line with the company’s plan to sharpen its focus on non-tobacco businesses.

ITC and its investment subsidiary, Russell Credit, hold 61.05 per cent in Bhadrachalam, having increased their stake by 5 per cent in just over a year. Russell Credit raised its holding in Bhadrachalam by over 4 per cent through the creeping acquisition route in 2000-01, and a little less than 1 per cent in the five months of this financial year.

ITC plans to invest Rs 1,500 crore in the paperboard business over the next few years, and has recently lent Rs 252 crore in inter-corporate loans to Bhadrachalam.

ITC saw its paperboard subsidiary through troubled times until it turned the corner. After recovery, Bhadrachalam had looked at the possibility of acquisitions, but has now decided to focus on organic growth.

ITC has recently entered into a bevy of new businesses — greetings card and lifestyle retailing for instance – but these ventures
are being run by the group flagship.

Speaking to reporters after the company’s annual general meeting last month, ITC chairman Y.C. Deveshwar said it was a wrong decision to spin off different businesses into subsidiaries.

“We should have leveraged the ITC brand for all business, instead of creating independent subsidiaries,” he said.

ITC’s relies heavily on Bhadrachalam for raw materials to make greetings cards. The company sees great potential in the business. What is more, for its tobacco business, ITC needs high quality packaging. Bhadrachalam caters to this as well.

The stock markets reacted positively to the move. The ITC scrip shot up Rs 31.80 (4.4 per cent) to close at Rs 753.20, while the Bhadrachalam scrip moved up by 9 per cent to close at Rs 47.50 on the Bombay Stock Exchange.

BAT holds the key

However, one of the contentious issues relating to the proposed merger is the reduction of BAT plc’s stake in ITC as a consequence of the merger. BAT holds a shade under 32 per cent in the tobacco major. Deveshwar had earlier said BAT had always protected its stake from being pared down, and had even prevented ITC from growing through mergers and acquisition if such steps led to dilution in BAT’s holding in ITC.

A BAT spokesperson refused to comment on the development. “We have nothing to say till the board meeting. All we can say at this point is that ITC kept us posted on its plans of merging Bhadrachalam.” The ITC spokesperson refused to speak on the matter.

But sources in institutions close to ITC said BAT and ITC must have reached a consensus before the proposal was officially mooted. “ITC will have to seek shareholders’ approval to a special resolution on the merger, which BAT can always block. ITC would not have come up with the matter in the first place if it did not manage to win over BAT’s resistance if any,” an institutional representative on the ITC board added. The two companies have not been looking eye-to-eye for some time now, following BAT’s proposal to increase its stake in VST Industries, which Deveshwar opposes. He said, he supported the government’s view that investment in the tobacco industry should not be encouraged.

BAT has been preparing itself to seek the approval of the Foreign Investment Promotion Board (FIPB) for its proposed stake
hike in VST. The London-based tobacco major will have to obtain ITC’s approval to go ahead with its plans.

ALTERNATIVE SELLOFF ROUTE FOR MARUTI RULED OUT

FROM OUR CORRESPONDENT

New Delhi, Sept. 5:

The government today denied the Cabinet Committee on Disinvestment (CCD) was considering a new way to divest its stake in Maruti Udyog Limited (MUL). Instead, said heavy industry minister Manohar Joshi, the government will sell its shares in the country’s largest car maker through a rights issue, as planned.

“The decision to go in for a rights issue was taken in the beginning and we are going to stick to it. We are thinking of valuing the government’s shares,” he said on the sidelines Society of Indian Automobile Manufacturers’ (Siam) annual convention.

The minister brushed off reports which suggested that the government would allow Suzuki Motors or its sister companies to hike its stake in Maruti through a preferential allotment of shares.

The government holds 49.7 per cent in the company, Suzuki 50 per cent while the rest is with employees. “Maruti’s disinvestment will be done through a rights issue. There is no difference of opinion among the department of disinvestment, finance ministry and the heavy industry ministry on the issue,” Joshi said. He made it clear that Suzuki was not planting hurdles in the selloff process.

The original plan cleared by the Cabinet committee in February had set out a two-stage selloff process. In the first, financial institutions (FIs) would subscribe to the government’s portion of a planned rights issue. In the second, the company would float an initial public offering (IPO).

“We will go along with proposal put forward by financial institutions (FIs). It will be taken up at a Cabinet meeting shortly,” he said.

COFFEE DAY OUTLET IN CITY NEXT YEAR

FROM OUR CORRESPONDENT

New Delhi, Sept. 5:

The Bangalore-based Rs 220 crore Amalgamated Bean Coffee Trading Co Ltd is set to invest Rs 102 crore to operate 200 cafes, 400 coffee retail outlets and 3,000 coffee vending machines, under its brand name Coffee Day by March 2004. The company, promoted by VG Siddharta, is making the investment from internal accruals.

The company plans to open a retail outlet in Calcutta by the middle of next year.

“After April next year, we will move from west to east India, after covering the north,” said Amalgamated Beans’ director Naresh Malhotra.

The company may divest its stake to an international coffee giant in about two years’ time, said Malhotra. He said Starbuck’s, the international coffee chain, was keen to come to India but said no talks had been held with it till now.

Cafe Coffee Day currently owns and operates 22 cafes in all; the 22nd Cafe was opened at Delhi Airport. Two more cafes are coming to Delhi, of which one will be in Connaught place. There will be 10 in Delhi by end of the year.

NO PRESSURE ON ICICI TO CUT STAKE IN BANK ARM

BY A STAFF REPORTER

Calcutta, Sept. 5:

ICICI will not have to reduce its stake in ICICI Bank to 40 per cent by the end of this month, something other private sector banks are required to do under regulations laid down by the Reserve Bank of India (RBI).

The financial institution holds 46.38 per cent of the bank’s Rs 220-crore equity.

“The Reserve Bank supports our move to merge with ICICI Bank. More important, it appreciates that the we may not have to dilute our holding for the union to take place. There has been no pressure to cut our stake by September 30,” a senior ICICI official said.

However, if the central bank has a change of mind in future, the institution will place the bank’s shares with strategic investors, the official said.

The ministry of finance and the Reserve Bank are supporting the development financial institution’s plan to transform itself into a universal bank through a reverse merger with ICICI Bank. The integration is expected to take a year and a half.

“The government and the RBI have realised that development financial institutions, such as ICICI and IDBI, need to convert themselves into universal banks. They are not only encouraging our move, but may also allow exemptions in some areas of compliance,” the official said.

ICICI had made a presentation on its proposed merger with ICICI Bank to the Reserve Bank in October last year, but its request for relaxation in the norms on statutory liquidity ratio (SLR) and cash reserve ratio (CRR) was shot down.

The financial institution will have to raise about Rs 20,000 crore to meet the RBI’s reserve requirements.

In a parallel development, ICICI has already started an internal restructuring drive to meet the central bank’s regulations.

The exercise includes reduction of subsidiaries from around 30 to 12, reshuffle of employees between ICICI and ICICI Bank, apart from a tighter provisioning system.

Commenting on the mismatch in the maturity of assets and liabilities, ICICI executive director Kalpana Morparia said: “Our assets and liabilities of one-year tenure have a mismatch of Rs 6,000 crore, but it will not lead to any liquidity problem. We have committed lines credit of Rs 2,000 crore from domestic and foreign lenders, and can use them when required.”

TRIMMING NPAS TOPS IDBI AGENDA

FROM OUR CORRESPONDENT

Mumbai, Sept. 5:

The Industrial Development Bank of India (IDBI) has drawn up plans to prune its non-performing assets (NPAs) on an immediate basis and reposition itself as a universal bank, apart from concentrating on sectors yielding good asset quality. Also on the anvil are plans to enter the lucrative housing finance arena, which, besides being highly competitive, is characterised by a low level of NPAs.

Speaking to a select gathering of newspersons here today, Padmanabh P. Vora, who took over as chairman and managing director of the financial institution today, revealed it would soon come out with a roadmap bringing out the various measures that have to be adopted over the short-term, medium-term and the long term. The FI will focus on the pharmaceuticals, telecom, infrastructure and consumer goods sectors in the coming months. “We are looking to reposition IDBI and the universal banking option is being examined in detail,” he said.

Vora explained the shift towards universal banking will enable the institution tap funds at low rates. However, he added IDBI would move towards universal banking only after having attained a strong asset quality and reducing its NPAs. It aims to bring down the ratio of net NPAs, from 14 per cent at present to below 10 per cent. He said the institution will be more transparent with shareholders and investors.

Asked about the bailout package for the Delhi-based IFCI, he said the institution would stand by its commitment made to IFCI. The IDBI chief, however, declined to comment on the Enron issue.

Vora has been appointed for a two-year term, up to September 30, 2003.

SWEETER DEAL FOR CASTROL INVESTORS

FROM OUR CORRESPONDENT

Mumbai, Sept. 5:

The Securities Appellate Tribunal today said BP Plc (formerly BP-Amoco) should pay a 15 per cent interest on its open offer price to shareholders of Castrol India from August 8 to the day the money is actually disbursed.

The amount will be computed on the open offer price of Rs 350 per share, imposing an additional burden of over Rs 57 per share on BP if it wants to pick up shares from investors of Castrol India.

Sources close to the UK-based petro giant said the company will contest the order — which effectively requires it pay over Rs 407 a share — passed by the tribunal.

BP is required to make an open offer for acquiring at least 20 per cent of Castrol India’s non-promoter holding under Sebi’s takeover regulations after it took over Castrol India’s foreign parent.

BP had appealed to the Securities Appellate Tribunal against Securities and Exchange Board of India’s order under which it would have had to pay the interest from March 14, 2000. The ruling has now been modified by the tribunal, which has said the 120-day period for the process to be
completed, should start from that date.

“In any case, an acquirer cannot be expected to accept shares and pay a consideration for the same in an acquisition which was not completed in all respects,” Securities Appellate Tribunal has said in its order.

The Castrol share closed Rs 1.75 paise higher at Rs 259.55 on the Bombay Stock Exchange (BSE), hoisted by investors who are hoping for the deal to get better.

TATA STEEL FERRO CHROME FORAY IN FOUR MONTHS

BY A STAFF REPORTER

Calcutta, Sept. 5:

The Tata Iron & Steel Company Ltd (Tata Steel) is venturing into other pastures, diversifying into sectors which it believes will enable it achieve balance as a steel maker. In a shift from its focus on core competencies, the oldest private sector steel major in the country now plans to invest over Rs 500 crore to set up a ferro chrome unit abroad and a titanium project in Tamil Nadu.

Tata Steel managing director B. Muthuraman said here today the company will set up the proposed ferro chrome unit either in Australia or South Africa, with an investment of around Rs 300-350 crore.

“We will take a decision on the issue in the next three-four months,” he said.

Plans for the titanium project, however, are in a more advanced stage. Muthuraman said the company is likely to sign a memorandum of understanding with the Tamil Nadu government by this month to carry out a feasibility report. While the initial investment in the project will be around Rs 200 crore, it has very good prospects, he said, indicating the company may invest more in the project.

The new Tata Steel managing director, however, is not very optimistic about the steel market in the current fiscal year. Tata Steel, which is one of the lowest cost steel producers in the world, is targeting more effective cost management, to increase its competitive edge. The company, which plans to improve productivity from 160 tonnes per man per year to 400 tonnes, is also going in for a leaner and trimmer look.

Moreover, Tisco is strengthening its rural marketing network.

Earlier, while addressing a seminar on ‘Competitiveness India 2001’ organised by the Confederation of Indian Industry (eastern region), Muthuraman claimed that Tata Steel’s market share in both long products and flat products rose by 1 per cent to 9 per cent and 18 per cent respectively.

RBI RELIEF FOR HOUSING FIRMS

FROM OUR CORRESPONDENT

Mumbai, Sept. 5:

In a move that could boost the capital adequacy ratio (CAR) of domestic housing finance companies (HFCs), the Reserve Bank of India (RBI) today agreed to bring down the risk weightage for housing loans to 75 per cent from 100 per cent at present.

This follows a long-standing demand of domestic HFCs, who have been seeking a revision of the norms, since the risks associated with housing loans have been diminishing over time. Further, non-performing assets (NPAs) in the housing finance sector are among the lowest in the financial sector, at around 2 per cent. Globally, only a 20 per cent risk weightage is associated with housing loans.

While the RBI has given in to the demand, the National Housing Bank (NHB), which regulates HFCs in the country, will soon issue a formal notification to this effect.

“A lower risk weightage for housing loans to 75 per cent, if it comes, could immediately impact the CAR of housing finance companies and enable them do more business with the same level of capital,” said V.S. Rangan, general manager, corporate planning and finance, HDFC Ltd.

Apart from housing finance companies like HDFC, banks and financial institutions like the State Bank of India and ICICI Ltd are also expected to benefit from the RBI move. Sources said in the event of a change in the risk weightage, the CAR of HDFC, the largest HFC in the country, will shoot up to around 15 per cent from over 12.7 per cent at present.

The minimum CAR stipulated for HFCs in the 2000-01 fiscal is 10 per cent and will rise to 12 per cent in 2001-02. Under the present norms governing HFCs, risk profiles differ for various assets while calculating the CAR. While cash and government paper have a zero per cent risk weightage, it is 20 per cent for bond issues of public sector financial institutions.

CII TO HELP MEND DABHOL FENCES

FROM OUR CORRESPONDENT

New Delhi, Sept. 5:

The Confederation of Indian Industry (CII) has taken up the task of waving the white flag in the Dabhol battle. The CII today said it has accepted US power major Enron’s request to act as an “interlocutor” between the company, financial institutions and the Maharashtra government.

“We will try to see that Enron completes phase-II of the 1,744 mw Dabhol power project, despite their decision to exit from India,” Tarun Das, the high profile director general of the apex industry chamber, said here today.

Speaking at a conference on “Consumer Attitude Study on Electric Supply” organised by CII, Das said Enron chief Kenneth Lay had sought the chamber’s support to break the impasse.

He said CII has now assumed the role of a facilitator between Enron, the financial institutions and the Maharashtra government. The financial institutions have sunk in nearly $ 1.2 billion in the Dabhol power project.

“We are playing the role of an interlocutor so that talks between Enron and other related parties do not break down,” he said, adding, “We hope to resolve the problem by the end of this month.”

CII claims to have played the arbitrator in the row between the government and Suzuki Motor Corporation over Maruti Udyog Ltd.

“We have the experience of bringing Maruti and Suzuki Motor Corp to one table and resolving the crisis in 1997. We are confident this time around as well,” Das said.

Enron had recently announced its decision to exit from India. “We want healthy Indo-US relations and Enron is a problem area. Efforts will be made to bring all to one table and resolve the problem amicably. CII is trying in a modest way to resolve the Enron problem, and create a win-win situation for both Enron and India,” he added.

Earlier, releasing the report on consumer attitudes regarding electric supply, Union power minister Suresh Prabhu said, “The study points out a major contradiction. It reveals the consumer satisfaction index is the lowest in the east, which has a power surplus.” “The problem lies with distribution. About 40 per cent of the power transmitted never reaches the consumers because the transformers at the sub-stations are old or are not functioning,” he added.

The power ministry has set up a committee which will review all the districts in the country, identify the trouble spots and come out with a status report. First on the agenda of the high-powered team will be Uttar Pradesh and Bihar, said Prabhu.